Problem 25

Introduction

In economy of any respective country, government plays a crucial role in stabilizing the economy in the following way,

1. If the inflation in the economy is high then government can go to increase the tax rates, issue bonds to suck the excessive money from the economy.
2. If the country is in slowdown, then government can go for increasing money supply either by putting excessive money through its central bank or can purchase bond from the banks.
3. During economic recession, government generally join for a 'crowding in' model to influence the private firms to increase the demand and supply in the market as well as generate employment.